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Lessons Learned From 100-Year Family Businesses

Very few family businesses survive across generations to become 100-year family enterprises. I’m involved in an ongoing research project that’s gathering the collective wisdom of intergenerational families who have sustained shared family values and identity, along with partnership in successful business and financial ventures, over three or more generations. (We refer to them as “generative families.”)

We asked family leaders to look back at their evolution and tell us what they’ve done to succeed across generations. We’ve interviewed family leaders from 70 families who created strong, coherent, united and vital families over several generations, despite facing complex internal and external challenges. What enabled them to succeed against such odds? Their wisdom can guide the creators of new wealth to build their own families for the future.

Seventy percent of our respondents come from the United States; the others span four continents. Almost all have family net worth in excess of $200 million, with a median of $700 million.

Evolving Across Generations

Each of the first three generations face common challenges set by biology and business evolution. G1 usually features an entrepreneur whose vision succeeds beyond his wildest imagination. His children grow up viewing his achievement with huge expectations that they continue. They must learn to manage the fruits of their good fortune, work as a team and develop values of stewardship and responsibility.

While there may not be a single moment in which the family decides, “We are going to create a great family,” at some point in the second (G2) or third generation (G3), members see the need to develop policies and structures and engage each other in the work of developing a family organization. They invest in the development of family connection, unity and capability. Doing so involves several tasks. They must set the family business, or businesses, on a professional footing, sometimes by limiting the opportunities for family members to be involved. At the same time, they unify and develop the family with regular family activities, philanthropy commitments and next-generation education. If they’re to enter a fourth generation (G4), the family must actively renew its vision and commitment with each new generation of family members, while still developing a highly professional and sometimes public company. Many families sell their legacy business and create a family office and investment group, which demands a substantial shift of focus, skills and activity. These post-G4 families also often initiate shared educational and philanthropic activities, often including 100 or more family members.

Family Councils and Constitutions

A generative family isn’t just a bunch of cousins who like each other; they’re the stewards of an extensive portfolio of assets. Each generation includes more people with diverging interests who must decide not just who’ll be the leader, but also what sort of engagement they want with each other. In G2 or G3, the family builds an organization representing all family members who choose to work together. They develop a representative group—a family council—and maybe other task forces or work groups to organize their activities. They also define shared values and policies that govern the council, family get-togethers, employment, compensation, distribution and sale and exit. All of these must be agreed on and administered; they can’t just be imposed by the prior generation. These policies are often codified into a document called a “family constitution,” which brings together and expands on the legal, trust and shareholders’ agreements for all of the family ventures.

Board Development

From its origins as a single business, the family enterprise may grow to include many assets. While in G1, the boundary between family and business was loosely defined. Eventually each family enterprise reaches a point—often by G3—at which they have to take steps to protect and insulate the business from the family. This often takes the form of the development of a board of directors with independent non-family directors appointed by the family shareholders.

Human Capital Development

Each new generation of family members grows up with expectations of what the family enterprise will offer them. This is entitlement. The generative family understands that accompanying the benefits they receive, each generation must also earn a living and develop their own capabilities. The generative family allocates resources for next-generation education and development. They’re encouraged to find ways to support themselves in their lives, even as they have trust funds and income from the family. Learning activities are one of the more important features of generative families. These activities bring the dispersed members of new generations into contact with their shared heritage and teach them about the opportunities that they can take advantage of.

Family Philanthropy

Generative families have more than they need to thrive. Some next-generation family members grow up feeling a bit uncomfortable with how much they’ll inherit. They may want to use some of the family’s wealth to make a difference. Shared philanthropy is another means to sustain family connection and engage the next generation. Opportunities to participate in service activities as they’re growing up and learning about past projects the family has supported helps young family members to become involved in the family enterprise.

Qualities of the Generative Family

Either in response to a financial and family succession crisis, or (less frequently) by the foresight of the leaders of the previous generation, generative families embody the following qualities in the way that they engage the family together:

Core values: A family business begins with a strong sense of mission and values, at least as a business. To continue into the next generation, heirs need to develop their values and affirm their commitment to them. To attract succeeding generations to remain part of the enterprise, each generation must renew their values and mission to make being part of the effort meaningful to the emerging generation.

Resiliency: Generative families are characterized by adaptability and resiliency. No family can avoid tragedy, and no business can avoid crisis. The successful 100-year family is able to respond constructively to each of the crises that come their way.

Transparency: G1 usually has one founder who’s not accustomed to sharing information, ideas or control. When a family reaches G2 or G3, however, the next generation needs to get up to speed on key information about the business and financial agreements. This means that trust documents, business plans and financial records must be shared, understood and discussed by more family members. Information about the family enterprise must become freely available inside the community of the family.

Cross-generational engagement and collaboration: Siblings learn to fight and argue before they learn to cooperate. Some siblings never move past this lesson. As a family enterprise enters G3, cousins and married-in family members can make differences more likely than common ground. With scores of relatives, family bonds may not be as intimate, but a shared sense of purpose and commitment to work together in a cooperative and respectful manner has to emerge. Each family has to develop an ethic of basic trust, respect and cooperation to enable them to make difficult decisions.

Opportunity: The family must innovate in ways that offer new opportunities for family members to contribute, not only as business leaders, but also as entrepreneurs, social innovators or philanthropists supported by the family, and in serving the family as a community.

A Positive Narrative

It’s hard to listen to the stories of these 70 families and not feel admiration and respect for what they’ve done. In a time when there’s much concern about the concentration of wealth in the hands of “the 1 percent,” a study such as this that looks at how these families are making use of their wealth is an important addition to the dialogue. The successful 100-year family isn’t necessarily a selfish group of consumers of excessive luxury goods, but can also be a socially responsible entity, using its vast resources in a responsible way to make a difference in the world.

This is an adapted and abbreviated version of the author's original article in the August issue of Trusts & Estates.